Social Security

I would like to be able to say that there is no right or wrong answer as to when you should collect Social Security, but the truth is that the wrong answer could cost you tens of thousands of dollars.  Schedule a consultation with our Blueprint office to get a personalized analysis.  

Social Security is the federally maintained social benefits program that, for many retirees, is a primary source of income in retirement.  If you have worked for a minimum of ten years and paid social security taxes or have been married to a participant (under certain conditions), then you will be entitled to claim Social Security benefits.  The oh so important question is when do you start to collect them and what is the “cost” of the other options?  

If you enroll at the current full retirement age of 66, you would get 100% of your full benefit.  But if you started early at 62, you’ll be entitled to only 75% of your full benefit.  On the other hand, if you can wait to claim benefits until the age of 70, your monthly payout would be 132%.  Essentially, each year you can afford to wait increases your benefit, on average over those eight years, by approximately 8% each year.  

As a more specific example, let’s say that your average annual earnings Social Security benefits determinant was $75,000.  At the age of 62, your annual benefit would be $15,888.  However, your benefit would increase to $21,181 if you could wait to make your claim until you reach the full retirement age of 66.  And if you could hold out until you were 70, then the annual benefit amount would increase to $28,821!  Simply put:  an 8-year wait gets you an 81% increase in annual Social Security payments.  

There are, however, a number of issues to consider as you approach the question of when to start taking your Social Security benefits.  

1. Your current health.  The healthier you are, generally, the longer you will live and so waiting to start taking benefits may make sense.
2. Your ability to work.  If you have a very physical job, you may not be able to continue working, so starting benefits sooner may make sense.
3. Will you work prior to your full retirement age while collecting benefits?  If so, you may not want to take Social Security early since if you make over a specific amount, your Social Security benefits are reduced.  In the year before you reach your full retirement age, the earnings limitation will rise, amounting to a deferment of $1 for every $3 earned.
4. Do you come from long-lived family?  If your parents and aunts and uncles lived into their 80’s and 90’s, you could make the assumption that you probably will, as well.  The longer you believe you might live the more sense it makes to wait to claim benefits.
5. Your desire or need to work.  If you work and do not need the Social Security benefit, it may make sense to wait so that you can collect a bigger check later.
6. Other financial resources.  If you have IRA or 401(k) accounts that you can rely on and use those benefits for each year that you wait after your full retirement age, then your Social Security payout goes up 8% each year.  There is no market risk to get that increased amount, unlike the IRA or 401(k), and there is no other investment that will give you a pretty much guaranteed 8% annual return.  

But, even after all those considerations, the complications can grow if you are married because there are also spousal benefits to consider.  This becomes important for those that were married and never worked or who worked for a limited time, part time or had a smaller salary compared to their spouse.  The spousal benefit at full retirement age is 50% of the spouse’s benefit.  For example, let’s say both individuals are age 66 and one spouse has a full benefit of $2,800 a month while the other spouse, who only worked part time over a limited time frame, has $550 as their full benefit.  In this case the spousal benefit would be half of the higher amount or $1,400 and a better choice.

But even when both spouses worked and have similar benefits, it’s possible to claim the spousal benefit at full retirement age and not take your larger personal amount (instead letting that future benefit grow at 8% per year) and then, at age 70, dropping the spousal benefit amount and claiming your own much larger benefit.  

Many new beneficiaries are getting better informed; the numbers of individuals who are waiting until the age of 66 to claim benefits has been surging in recent years.  About 11% wait until the age of 67 or beyond to claim, with many holding out until age 70.

The drawback to waiting to claim Social Security benefits is the ultimate one: death.  If you die before you file for Social Security benefits, then no one wins – not you, not your spouse or your dependents.

Unfortunately, there are many other considerations and, even more unfortunate, the Social Security office personnel are not there to give advice as to the best strategy for your particular situation.  That means that you need to have all of the information so that you make the best decision, and to that end you will need to do a bit of research.  

So, while the answer to the question when to take Social Security is clearly a personal one, it might not be quite so clear with the many variables. You may want to do a little digging into all of your options before you make the decision about when to start taking your Social Security benefits.